Pages

FPM Moot-Points:

Tweet Me Please!

Tuesday, 10 June 2014

The Calm Before The Storm: SAC Takeaways – Part 1

In the long-running insider
trading saga of billionaire hedge fund manager Steven A. Cohen and his
eponymous firm SAC Capital - a firm nowadays with a face-lift as “Point72 Asset
Management”- there are still a few twists in the tale.

Fund Portfolio Management (FPM) for its “No Smoke Without Fire”
investment enterprise on reputation risk suggest that today’s expected announcement
(June 10th) about Mathew Martoma’s sentencing could yet herald a fault line of tremors for Mr
Cohen personally and set a precedent for the hedge fund industry. Especially in
regards to the extent of criminal punitive sentencing in a caper that has been
headlined as the “biggest
insider trading scheme in history”, making the participants profits and/or
avoiding losses to the princely tune of US$ 275 mn.

FPM expects the severity of the formulaic
and deterrent-message in the sentencing to be significantly monumental. Seeing
that Mr Martoma’s convicted crime exacted a record US$275 mn in ill-gotten
gains, b) that he instigated connection and payments with the inside-information
provider named Professor Sidney Gilman (a neurologist expert group witness who secretly provided non-public information on clinical
trials of an Alzheimers-cure drug); and c) that his ‘offence level’ leads him
right to the top of the conspiracy tree to Mr Cohen himself, via the 20-minutes
conversation in July 2008 just before SAC Capital started unwinding it position
in Alzheimer drug companies Elan and Wyeth.

FPM principle in his conscionable deliberation would expect the sentence to be
harsh on a deterrent grounds basis, even though he was indicted and convicted
on three counts, because of his central role in the conspiracy. And
additionally, to induce Mr Martoma to co-operate
with US prosecutorsgiven the 6-8 years sentencing we expect today. Stop Press! At the request of Mr Martoma's defence attorneys the sentence hearing has been postponed and publically press-announced 5th June 2014! When the sentencing hearing, presided by Judge levies personal
forfeitures and fines relating to the
reported US$ 9 mn that Mr Martoma received as bonus for conspiring towards US$ 275
mn of illicit gains, could also be an inducement for Mr Martoma to squeal on Mr
Cohen. Time in jail versus weighed up against hoarded assets / money hidden from prosecutors is the old trade off facing Mr Cohen's cronies in sentencing played out! How much is Mr Martoma’s silence
worth to Mr Cohen? Mr Martoma has 3 children and a beautiful wife to sweat in hardened prison environment.

Most of the pandering public press are speculating about 10 years sentence for Mr Martoma, our suggestion of 6-8 years analyses that in systematic-wide efforts to protect and earn the largesse of billionaire entrepreneur Mr Cohen, a maximum guideline sentence could not be applicable. Otherwise Mr Martoma would proffer the main cull for the baying public anger and show some moral rectitude rather than be the sacrificial lamb for Mr Cohen. We look at he another high profile case where the sentencing was also funninly leanient!!!

The 17-years veteran of SAC Capital and friend of Mr Cohen, Michel
Steinberg, is the other most senior racketeer in the web of securities fraud seduced
by illegal insider trading. Following his conviction in December on all five
indictments, last month he received three and half years jail sentence. The prosecution
had asked for a 5-6 years sentence. He got off lightly and the Judge even described him as "

a basically good man". Astonishing, the civility afforded to white collar criminals! That court case presiding Judge Sullivan
also ordered Mr Steinberg to forfeit $365,000 and pay a fine of US$2 mn. Aggregate
punitive redress by Mr Steinberg will include legal costs estimated by some
legal experts as up to US$10 mn. Crime
really does pay! at leaston this
occasionfor Mr Steinberg’s attorney
Barry Berke and his firm. He is currently free on bail awaiting the outcome of the
US Court of Appeals for the Second Circuit in a related case-point in law.

The case under Second Circuit appellate
panel is expected to make imminent decision as to reversing or vacating the
existing convictions. The convicted case involves
the notorious ex-SAC Capital employees Anthony Chiassons (Co-founder of now defunct Level Global Investors) and Todd
Newman (portfolio manager at also wound-down Diamondback Capital). They respectively received sentences of six and a half years and four
and a half years, and are free on bail pending the appeal. Notice the central role of Mr Chiasson and the severer sentence terms. The argument that
both men are presenting is that it is not illegal to trade on non-public,
confidential information if they did not know that the person providing the
information was receiving some benefit.